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Versatile Options for Home Equity Lines

Sheryl Landrum
LoanBiz Columnist

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Home equity lines of credit have undergone dramatic changes recently, as lenders restructure the terms to attract borrowers. Today's homeowner faces a range of new options. It pays to consider them before settling on the right loan for you.

New Options

Home equity lines of credit (HELOC) are generally interest-only products based on the prime rate. As the prime rate increased in the last couple of years, so did the payment due on borrowers' HELOCs and some borrowers were stuck with double the mortgage payment than the amount with which they started. To stop the rush of refinancing, and to attract new mortgage loans, home equity lines of credit now offer optional pricing such as 5, 7, 10, 15, and 20-year fixed rate locks on the home equity line. This allows the borrower to fix all or a portion of the line of credit to a set interest mortgage rate.

For example, let us say that you have $100,000 available line of credit and you would like to borrow $30,000 against it. Nervous about interest rates rising, but still desiring the interest-only mortgage payment available with a HELOC, you can now choose a fixed interest rate and a fixed loan term for the $30,000 you borrow. If you decide to draw another $50,000 from your HELOC, you can fix that amount at the going rate as well.

So technically you can have a mortgage payment that reflects individual loan amounts set at different interest rates. Right now the trend is to allow borrowers to “recast” their interest rate three times during the loan period for a fee, which is often as low as $50. That's $50 well spent, if interest rates drop accordingly.

Time will tell if this new trend in home equity lines of credit will dampen the rush to refinancing into a home equity loan (fixed rate, fully amortized, 2nd mortgages). If nothing more, lending gets creative when borrowers need options. If you too need options with your mortgage needs, call your lender today to see what new products and services are available for you.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.

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